Knowledge Problem

Michael Giberson

Like the editorial board of the Wall Street Journal, I’d like to see the Production Tax Credit for wind and other renewable energy technologies expire at the end of this year as scheduled. So policy-wise, I’m with them. Still, their editorial against the wind power policy yesterday was awful and it deserves public criticism.

So here are quotes from the WSJ in italics, followed by my comments.

“The renewable energy tax credit—mostly for wind and solar power—started in 1992 as a ‘temporary’ benefit for an infant industry.”

Stick with “mostly for wind.” Other technologies qualify, too, including a variety of hydroelectric technologies and geothermal power, but not currently solar power.

Solar was briefly included in the PTC through the American Jobs Creation Act of 2004, but then was back out at the end of 2005. Solar power benefits from the Investment Tax Credit, and until December 2011 benefited from “Section 1603″ cash grants in lieu of the ITC.

If you’re tempted to argue they said “renewable energy tax credits”, not specifically the PTC, note that they clearly say the renewable energy tax credits that began back in 1992 (in that year’s Energy Policy Act) – they’re talking about the PTC and they get the solar reference wrong.

Details on the PTC, via DSIRE.

“The ’1603 grant program’ pays up to 30% of the construction costs for renewable energy plants …. Wind producers then get the 2.2% tax credit for every kilowatt of electricity generated.”

No. To get the 1603 cash grant a developer has to forgo the Production Tax Credit. One or the other, but not both.

And for crying out loud, it is a 2.2 cents/kwh tax credit, not a “2.2% tax credit.” The Heritage Foundation can get this right, you’d think the WSJ could do as well.

(Or, more precisely, that was last year’s subsidy but the PTC is adjusted annually for the effects of inflation so in 2012 it will be slightly higher.)

… and Senator Jeff Bingaman of New Mexico has introduced a national renewable-energy mandate so consumers will be required to buy wind and solar power no matter how high the cost.

I didn’t notice this problem myself, not having dug through the details of the bill Sen. Bingaman introduced last week, but Richard Caperton and Stephen Lacey at Climate Progress point out that the bill caps the cost increase at 3 cents/kwh.

These sloppy errors don’t mean the WSJ is wrong, only that they’re willing to publish poorly researched opinion pieces.

The Caperton and Lacey post at the Climate Progress blog mentioned the above errors and raised some additional complaints. Most of their additional complaints concern the relative virtues of oil and gas production when compared to wind power, and who gets how much subsidy. On these points I mostly lean toward the WSJ‘s view. Suffice to say that wind power subsidies are orders of magnitude higher per unit of energy provided to consumers.

But this brings us to one key point they raise: “one justification for the tax credit is to makeup for the fact that taxpayers are bearing the harm from fossil fuels.”

There is, embedded in this idea somewhere, the foundation of an analytically sound justification for policy intervention. My problem with the Production Tax Credit for wind power is that it flows to wind investors for every qualifying kwh of power generated irrespective of any such benefit. The wind power investor gets the same subsidy whether the wind power produced displaces coal-fired electric power or efficient natural gas-fired power or hydropower. Wind would still qualify for a PTC even if its output was displacing solar power while wind turbines chopped up migrating birds.

While there may be an intellectually defensible case for a policy supporting renewable energy because it reduces a harm, the Production Tax Credit bears little resemblance to that policy.

So let’s let the Production Tax Credit die, and get on with the business of developing sound public policy on emissions. (And please, WSJ, stop embarrassing yourself with silly mistakes.)